Steps to Start Small Industrial Unit

Steps to Start Small Industrial Unit

The steps to be taken by entrepreneurs to start a small industrial unit are explained under the following heads;

Selection of the Product

The product selection is made by an entrepreneur according to his or her own capacity and motivation. One may design a new product or may imitate others products. The economic viability of the product should cover the demands such as

·               Volume of existing demand in the domestic market and export market

·               Volume of potential demand

·               Degree of import substitution and substitution of an existing product and

·               Volume of demand by big units for ancillary products.

Some of the most common small scale enterprises in our country are based upon the day to day needs such as readymade garments, leather foot wear, detergent soaps, detergent liquids, plastic items and food items like squashes, marmalade, pickles, jellies, jam and macroni.

Selection of form of ownership

The most commonly chosen forms of ownership for Small Scale Industries (SSI) are Sole Proprietorship, Family Ownership, Partnership and Private Limited Company. Sole Proprietorship and Family Ownership have unified control over the unit whereas Partnership and Private Limited Company facilitate the pooling of financial resources, managerial and technical skills.

Selection of Site

The selection of site is planning a suitable plot for the factory or unit while selecting a site. An entrepreneur should see to that the site enjoys government incentives, it is located near the market, it is easier to avail labour and procure raw material. Also it is good to note that the site has modern infrastructural facilities.

Designing Capital Structure

For a new venture the initial capital comes from the sources such as own capital, long term loans and short term loans. Bank plays a very important role in providing working capital to all companies or factories or units.

Acquisition of Manufacturing Know-how

Several institutions like government research laboratories, research and development divisions of industries or individual consultants provide the manufacturing know-how for the young entrepreneurs. This methodology is also provided by the machinery suppliers both domestic as well as foreign. Also the national laboratories and research institution give guidance related to the know-how of productions and operations.

Preparation of Project Report

The project is prepared as per the format of the loan application of leading institution. It covers the aspects like sources of finance (long term and short term), availability of machine, technical know-how, sources of labour, and sources of raw materials, market potentiality and overall profitability. All the aspects are systematically estimated and presented.

The project report compiled by the entrepreneur should provide a ‘Birds-eye-view’ of the entire spectrum of the activity. It should give all information about the following aspects;

·               Technical Feasibility - Power supply, water availability, transport facilities and communication network

·               Economic Viability -Share market, revenue, suitable price structure and market forecast.

·               Financial Implications - This comprises of recurring and non-recurring expenses. The recurring expenses include working capital, raw material needs, and wages for personnel, transport and power. The non-recurring expenses include land, buildings, plant and machinery.

·               Managerial Competency - All the major economic activities of the company are included under this head.

Registration

An entrepreneur, after deciding upon a suitable product can establish an industrial unit. For this he or she must first issued a provisional (temporary) Small Scale Industry (SSI) Registration Certificate.

This certificate is provided for one year and subsequently renewed for two periods of six months each. An extension of the provisional registration may also be given. Permanent Registration Certificate may be given for the industrial unit which has commenced production.

Obtaining Statutory License

The next step is to obtain Municipal License Registration with Central and State Sales Tax Departments. This is important to know about the sales made by each unit which in turn will denote the economic growth of the country. An entrepreneur should study the procedure completely for accounting sales to those departments and returns have to be submitted regularly.

Power Connection

The new entrepreneur should pay security deposit amounting to three months power connection. Formal application should be submitted to get power connection. There are categories of power supply namely Low Tension (LT) and High Tension (HT). To get power connection the entrepreneur has to make an application to the Assistant Divisional Engineer, Tamil Nadu Electricity Board.

Arrangement of Finance

The fund requirements for a project may be for long term and short term. Long term loans are used for acquiring assets like land, machinery and building, and short term loans are used as working capital, repayment for loans, bill discounting and in meeting day to day needs of the industry.

Loans for fixed assets are provided by the State Financial Corporation and Commercial Banks. Apart from this, these loans are based on company status, assets belonging to the entrepreneur and his possibilities for repayment.